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2022 Supreme(Online)(SEBI) 109
SECURITIES AND EXCHANGE BOARD OF INDIA
Dr. Dhananjaya Y. Chandrachud, J
Securities and Exchange Board Of India – Appellant
Versus
Rajkumar Nagpal & Ors. – Respondent
Civil Appeal No. 5247 of 2022
For the Appellants/Petitioners: N Venkataraman
For the Respondents: Darius Khambata, KV Viswanathan, Dhruv Mehta
The SEBI Circular is applicable prospectively and does not retroactively affect rights vested prior to its issuance, ensuring protections for dissenting debenture holders in resolution plans.
Headnote:(A) Securities and Exchange Board of India Act, 1992 - Regulations pertaining to debenture trustees - Cited RBI Circular dated 6 July 2019 and SEBI Circular dated 13 October 2020 - Jurisdiction and applicability of SEBI Circular for resolution plans discussed.
(B) Legal Standing - Debenture holders not being bound by proceedings executed without their consent under the respective trust deeds discussed.
(C) Interpretation of the SEBI Circular - Applicability to defaults prior to its issuance was subject to conditions prescribed.
(D) Civil Procedure - Jurisdiction of civil courts is upheld where matters are outside the purview of specialized tribunals. (Paras 47, 56, 64, 69)
Facts of the case:
The case involved the issue of validity regarding the SEBI Circular post-default by a corporate issuer concerning its debenture holders and the applicability of the RBI directions for the resolution of stressed assets. The Bombay High Court had a dispute regarding debenture holders’ engagement in a resolution plan without proper consent mechanisms.
Findings of Court:
The Division Bench of the Supreme Court ruled that the SEBI Circular did not apply retrospectively to defaults before its issuance and clarified that while debenture holders can execute a resolution plan, involvement in the inter-creditor agreement must also carefully follow specified conditions.
Issues: The core issues included whether the SEBI Circular required compliance from debenture holders and the jurisdictional authority of civil courts concerning the resolutions.
Ratio Decidendi: The court explained the importance of understanding procedural adherence under SEBI’s framework while differentiating between regulatory interests and actual creditor rights during financial restructurings.
Result: Appeal allowed in part, with specific directions tailored to acknowledge the interests of both dissenting and consenting debenture holders.
| Table of Content |
|---|
| 1. overview of the debenture trust deeds and defaults. (Para 1 , 2 , 3) |
| 2. the debenture holders' legal actions in the bombay high court. (Para 4 , 5) |
| 3. challenge against orders of the single judge concerning sebi's circular. (Para 11 , 12) |
| 4. arguments for and against the applicability of the sebi circular. (Para 16 , 17 , 18 , 19 , 20) |
| 5. court observations on retrospective application of the sebi circular. (Para 63 , 68 , 76 , 80) |
| 6. final order and conclusions drawn by the court. (Para 90 , 99 , 100) |
JUDGEMENT
Dr. Dhananjaya Y. Chandrachud, J.
Table of Contents
A. Facts .................................................................................................................. 4
i. The dispute .............................................................................................................. 4
ii. The suit before the Bombay High Court ............................................................... 5
iii. The impugned judgment ...................................................................................... 10
B. Issues ............................................................................................................... 12
C. Submissions ................................................................................................... 12
D. Overview of contractual arrangements ......................................................... 19
i. The Debenture Trust Deeds ................................................................................. 19
ii. Steps taken by the DebentureTrustee (Vistra) .................................................... 23
E. Evolution of the law surrounding the resolution of debts .......................... 25
i. The framework for the resolution of debt under the Companies Act 1956 ....... 25
ii. The RBI Circular dated 6 July 2019 and the legal framework thereafter ........... 27
iii. SEBI (Debenture Trustees) Regulations 1993 ..................................................... 32
iv. The SEBI Circular dated 13 October 2020 and the legal framework thereafter 34
a. The SEBI Circular: Overview and Implications ................................................................... 34
b. Voting at the ISIN level ....................................................................................................... 42
c. The SEBI Circular has a statutory character ...................................................................... 44
F. Analysis ........................................................................................................... 47
i. There is no bar to the civil court‟s jurisdiction ................................................... 47
ii. The SEBI Circular is applicable if debenture holders wish to implement a Resolution Plan to which the lenders are a party ....................................................... 49
iii. Dissenting ISIN level debenture holders are bound by the ICA / Resolution Plan iv. The SEBI Circular has retroactive application .................................................... 56
v. Exercise of this Court‟s power under Article 142 of the Constitution ............... 59 vi. Dissenting debenture holders in the present case ............................................. 63
A. Facts
i. The dispute
1. Reliance Commercial Finance Limited, RCFL issued Non-Convertible Debentures to various persons., debenture holders Vistra ITCL (India) Limited was the Debenture Trustee, Vistra under three Debenture Trust Deeds dated 3 May 2017, 23 May 2017 and 5 February 2018., Debenture Trust Deeds or "Debenture Trust Deed RCFL committed its first default under the Debenture Trust Deeds in March 2019.
2. On 7 June 2019, RBI issued the Reserve Bank of India (Prudential Framework for the Resolution of Stressed Assets), RBI Circular Directions 2019, with "a view to providing a framework for early recognition, reporting and time bound resolution of stressed assets., [Clause 4, RBI Circular.] The RBI Circular provided that certain lenders may opt for a resol
